Motorola and Nokia Battle for Palm Treo Line

According to published reports citing unnamed sources, Palm might sell out to rivals Motorola or
Nokia as the mobile market braces itself for the arrival of Apple’s iPhone.

The news comes on the eve of the Treo maker’s quarterly earnings conference, with online industry publication Unstrung.com reporting that Morgan Stanley wants to close a deal before Thursday. Palm apparently hired the investment banker several weeks ago to explore its strategic options, including the possibility of selling itself.

Besides Nokia and Motorola, private equity firms Texas Pacific Group and Silver Lake Partners have been named among the potential buyers. Neither Palm, Morgan Stanley, nor any of the alleged mobile shoppers could be reached for comment on the possible buyout. However, wireless industry analysts are not ruling out a quick sale.

Palm’s Woes

“Palm has been losing market share to RIM and others since it switched over to Windows Mobile,” said senior Burton Group analyst Mike Disabato, who was named one of the 50 most influential people in the network industry by Network Computing magazine.

Palm’s decision to adopt Windows Mobile commonditized the Treo, Burton noted, and the company doesn’t have the leverage to compete with the likes of HP’s iPAQ in the enterprise because it can’t offer a “deal” on a desktop-smartphone combo purchase.

Indeed, although Palm posted sales of $1.58 billion in fiscal 2006, the handheld pioneer is seeing more competition with Motorola’s Q and HP’s iPAQ line vying for enterprise attention. With more options on the market, Palm’s second fiscal quarter profits and revenues declined.

And with Apple’s iPhone hitting store shelves this June, analysts predict the competition will get even stiffer. Both Motorola and Nokia could be hoping to beef up their smartphone lineups in preparation for Apple’s onslaught this summer.

Meet the Buyers

Palm’s largest competitor is RIM, the maker of Blackberry, which has not been named among the potential buyers. Nokia, the world’s largest handset maker, is deemed the most likely Palm purchaser.

The Symbian mobile operating system is the most widely deployed in the world, but it has not done as well in the U.S. where Windows Mobile dominates mobile devices. If Nokia nabs Palm, Disabato said, it has all the OS bases covered.

“The Palm purchase would be a smart move for Nokia because they’ve had a hard time penetrating the U.S. with Symbian,” he explained. “Enterprises like Windows mobile because it supports the .NET Compact Framework and ActiveSync.”

Motorola, the number two handset maker, is also reportedly vying for Palm. Motorola would benefit with the immediate expansion of its smartphone line, currently headed up by the Q. Motorola, Disabato said, would step into a marketplace it wants to play in. However, published reports indicate that Palm is leaning toward selling to a private equity investor.

The question is how this would impact smartphone users. The answer, Disabato said, is that it won’t — at least not in the short term. “The designs and internal specs of the Treo would probably change over the next few years,” he said. “But that’s going to happen anyway.”